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Appeals Court Articulates Stricter Independence Standard for Directors in Derivative Cases

Dechert has issued a legal update summarizing a recent court decision that applied a stricter independence standard for fund directors and their business relationships in the context of shareholder derivative litigation against investment advisers.  According to Dechert, the Court’s ruling may heighten courts’ scrutiny of board directors’ current and prospective business relationships with investment advisers and their affiliates.

Most notably, two fund directors who would not have been considered “interested persons” under the 40 Act, were considered “interested” for purposes of assessing shareholder litigation against the investment adviser.  Dechert states that although the First Circuit’s ruling relies upon facts specific to the case, plaintiffs in future shareholder derivative suits will no doubt seek to apply the decision more broadly.

The full client alert is available here.